This reassessment focuses on the Fidelity Fundamental Large Cap Growth ETF (FFLG), an actively managed exchange-traded fund designed to identify large-cap companies with substantial growth prospects. While FFLG demonstrated strong initial gains following a strategic adjustment in February 2024, outperforming IVV and IWB, its subsequent performance has raised concerns. The ETF has since fallen behind QQQM, IWF, and SCHG, exhibiting increased volatility and larger maximum drawdowns. Despite a portfolio of 96 equities and a strategic tilt towards Growth at a Reasonable Price (GARP) characteristics, influenced by key holdings like NVDA and MU, the overall performance does not warrant an upgrade from its current 'Hold' rating.
The Fidelity Fundamental Large Cap Growth ETF operates with a clear objective: to invest in large-cap companies that exhibit a combination of strong growth potential and reasonable valuations, a strategy often referred to as Growth at a Reasonable Price (GARP). This approach aims to balance growth investment with valuation discipline, seeking to avoid overvalued growth stocks while capturing companies with sustainable expansion. The fund's active management seeks to identify these opportunities within the large-cap universe, leveraging detailed fundamental analysis to construct its portfolio.
A significant shift in FFLG's investment strategy occurred in February 2024. Following this change, the ETF initially showed promising results, surpassing the performance of several major benchmarks, including the iShares Core S&P 500 (IVV) and the iShares Russell 1000 Value ETF (IWB). This early success might have suggested that the new strategy was effectively identifying high-potential companies. However, this period of outperformance proved to be short-lived, as the ETF's trajectory soon diverged from its initial positive trend.
In the subsequent months, FFLG's performance began to lag behind other prominent growth-oriented ETFs, such as the Invesco QQQ Trust (QQQM), the iShares Russell 1000 Growth ETF (IWF), and the Schwab U.S. Large-Cap Growth ETF (SCHG). This underperformance was accompanied by higher levels of volatility and deeper maximum drawdowns, indicating a less stable investment profile compared to its peers. The fund's larger drawdown implies that investors experienced greater capital erosion during market downturns, a critical factor for risk-averse investors.
The FFLG portfolio is relatively diversified, holding 96 distinct equities. Its GARP tilt is evident through its holdings, with companies like NVIDIA (NVDA) and Micron Technology (MU) representing significant positions. These companies are often characterized by strong earnings growth combined with valuations that are not considered excessively inflated. While the fund's factor mix and GARP characteristics are fundamentally sound, the real-world performance has not translated into a compelling investment case. The author's previous 'Hold' rating is maintained, suggesting that despite its strategic merits, FFLG's current performance does not justify a more optimistic outlook or an upgrade.
In conclusion, while the Fidelity Fundamental Large Cap Growth ETF (FFLG) implements a robust GARP strategy and initially showed promise after its strategic pivot, its recent performance has been underwhelming. The ETF's inability to consistently outperform its growth-oriented counterparts, coupled with its higher volatility and greater drawdowns, diminishes its appeal. Therefore, the assessment concludes that an upgrade from a 'Hold' rating is not warranted at this time, emphasizing the importance of actual performance over strategic intent.